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“Tax Opportunities and Tax Traps for Real Estate Transactions”

Real Estate Finance Journal John T. Barry, Jeffrey B. Fugal, Edward J. Hannon, Patricia A. Hintz, and Elizabeth G. Nowakowski

Below is an excerpt:

The new tax rules that were enacted in the Tax Cuts and Jobs Act of 2017 (the “2017 Tax Act”) significantly changed the tax landscape for real estate owners and developers. Among the significant changes included in the 2017 Tax Act are (i) the implementation of a new three-year holding period that applies to “carried interests,” (ii) a new tax deduction that applies to flow-through entities like partnerships, limited liability companies and S corporations, and effectively results in a rate reduction for such entities, and (iii) new rules limiting the deductibility of business interest expense. With these tax law changes, owners and operators of commercial real estate now have more tools in the tool box to increase “after tax” returns. However, these tax law changes also lay potential “tax traps” that can end up creating additional tax costs if proper steps are not taken.


Originally appeared in the spring edition of Real Estate Finance Journal, February 1, 2018